Case $7$: IAS $8-$ Accounting Policies, Changes in Accounting

Estimates, and Errors

Scenario:

RetailHub Ltd$.$ has been using the straight$-$line method to

depreciate its store equipment, assuming a useful life of $10$ years

with no residual value. As of January $1,2024,$ the carrying

amount of the equipment is $$4$ million. The company re$-$

evaluated the usage pattern of its equipment and decided to

switch to the reducing balance method at a rate of $20\%$ per

annum, effective from the beginning of $2024.$

Additionally, the company discovered that an expense of

$$300,000$ incurred for staff training in $2023$ was incorrectly

capitalized as part of intangible assets. The management wants

to correct this error in the $2024$ financial statements.

Required:

a$)$ Discuss whether the change in depreciation method should

be treated as a change in accounting policy or a change in

accounting estimate under IAS $8.(4$ marks$)$

b$)$ Calculate the depreciation expense for $2024$ using the

reducing balance method and compare it with the straight$-$

line method. $(4$ marks$)$

c$)$ Explain how RetailHub Ltd$.$ should correct the error in

capitalization of the staff training cost in the $2024$ financial

statements, and provide the journal entries for the

correction. $(4$ marks$)$

d$)$ Discuss the impact of the change in depreciation method

and the error correction on the financial statements and

how these changes should be disclosed. $(3$ marks$)$